10 Discrepancies Commonly found in Shipping Documents covering Exports

The common discrepancies found in documents tendered under a letter of credit can broadly be classified under two heads:

(i) those which can be rectified by the exporter and

(ii) those which cannot be so rectified.

The rectifiable discrepancies mostly refer to some mistakes committed in the documents prepared by the exporter. Illustrations of such discrepancies are : omission of reference to the letter of credit in the bill of exchange, shipping marks differing in the invoice, the number of copies of invoice less than the requirement, etc. The bank would require the exporter to resubmit the documents after the discrepancies are rectified.

Some discrepancies that cannot be rectified by the exporter are: bill of lading being claused, shipment after the letter of credit has expired, etc. Where documents are tendered for negotiation with such discrepancies, the bank understands that it is not a negotiation as per the terms of the letter of credit and, therefore, the issuing bank cannot be compelled to make payment.

The negotiating bank has different alternatives in dealing with such a situation. The decision would depend upon: (i) the nature of discrepancy, (ii) worth of the customer and his dealings with bank, (iii) experience with the issuing bank and the importer under the credit in the past, and (iv) amount involved. The bank may do any of the following:

(i) Negotiate the bill under reserve. That is, the amount is paid to the exporter on the understanding that it will be paid back to the bank, if the documents are not accepted by the opening bank. This facility is reserved for first class customers.

(ii) Negotiate the bill against indemnity from the exporter. The nature of the discrepancies is detailed and the exporter executes an indemnity bond in favor of the bank, whereby he agrees to reimburse the bank of any loss sustained on account of negotiation of the documents tendered. This is more formal than negotiation under reserve.

(iii) Negotiate after getting cable confirmation from the opening bank. The negotiating bank can cable details of all the discrepancies to the opening bank and negotiate the documents after obtaining consent from them for negotiation in spite of the discrepancies.

(iv) Take the documents, for collection. Where the bank is not satisfied or does not want to take risk, the documents may be accepted for collection instead of for negotiation.

It is possible that the exporter is not a customer of the negotiating bank. In such a case the alternatives available to the bank are:

(1) Negotiate after getting cable confirmation from the opening bank;

(ii) Negotiate against indemnity executed by the exporter’s bank; and

(iii) Refuse to negotiate the documents.

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